- Work with your lender: Hills says that, time and time again, consumers don't pick up the phone and talk to a creditor they're struggling to pay money to. If the phone is ringing, he says, that's a golden opportunity to work out a deal -- maybe even for less money owed -- to pay off the debt and eliminate late fees and charges.
- Get counseling: It's perfectly OK to contact a credit counselor to discuss a plan to pay back your debts. In fact, Hills recommends it. But make sure the credit firm is a reputable one. After that, the process is fairly straightforward. "The agency negotiates with creditors for you to eliminate late fees, lower interest rates and extend terms," he says. "You, in turn, make a monthly lump sum payment to the agency, and they pay your creditors for you. Such a program generally lasts three to five years."
- Cut back: Maybe you've heard the term "living below your means"? Hills swears by it, and says you should, too. "Living beneath your means is the key to a stable financial life," he says. "When your debt is out of control, your best bet is to take a proactive approach and get rid of items before you lose them. For instance, if you have two cars and are struggling to make the payments, selling the most expensive car before it's repossessed gives you money to pay down debt and helps you avoid having a bad situation turn worse."
- Find more cash: This one isn't easy, but it may be needed to avoid bankruptcy. Hills advises taking a second job or working overtime to catch up on debt. If you can downsize your financial life and add some income, you'll go a long way toward reducing your long-term debt, he says.
- Create an emergency fund: Even if you "start small," building an emergency fund is still a great personal financial strategy. Part therapy and part financial firewall, an emergency fund is a big step in, well, sidestepping bankruptcy. "Once the balance starts to rise, you'll find yourself more optimistic about your financial future and more likely to save even more," Hills says.
5 Ways to Step Back From Bankruptcy
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